Opinion
No. 96 B 04594, 96 B 04596, No. 99 C 2537 (Jointly Administered)
February 17, 2000
MEMORANDUM OPINION AND ORDER
On October 5, 1995, Apex Automotive, L.P. ("Apex") brought an action seeking a declaratory judgment against Defendants WSR Corporation ("WSR") and Deloitte Touche L.L.P. ("Deloitte"). On February 22, 1996, Apex filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et. seq. Shortly thereafter, in April 1996, Apex voluntarily dismissed Deloitte from the declaratory judgment action. In October of 1996, Apex filed an Amended Complaint in the Bankruptcy Court, naming only Defendant WSR and asserting several counts, including a fraud claim. On May 13, 1998, Apex filed a Second Amended Complaint adding Deloitte as a Defendant. The counts against Deloitte were based on Deloitte's alleged active participation with WSR in a fraud perpetrated on Apex in connection with Apex's January 1995 acquisition of a wholly-owned division of WSR, The Whitlock Corporation ("Whitlock"). Deloitte moved to dismiss or for summary judgment on timeliness grounds. In a March 9, 1999 Memorandum Opinion and Order (the "Opinion"), the Bankruptcy Court dismissed Apex's claims against Deloitte as barred by the two-year statute of limitations. Apex appeals. Finding no error in the Bankruptcy Court's holding, the court affirms.
In its initial complaint, Apex asserted that the court had jurisdiction pursuant to 28 U.S.C. § 1332 (diversity jurisdiction). In its Amended Complaint and Second Amended Complaint, Apex asserts that the Bankruptcy Court has jurisdiction over the adversary proceeding pursuant to 28 U.S.C. § 1334(b), on the basis that the adversary proceeding is "related to" the Chapter 11 case of Apex. (Second Amended Complaint 65.)
FACTUAL BACKGROUND
WSR is a Delaware corporation with its principal place of business in South River, New Jersey. (Complaint for Declaratory Judgment ("Complaint"), ¶ 4.) Deloitte is a Delaware limited liability partnership with its principal place of business in Wilton, Connecticut. (Complaint, ¶ 5.) Apex is an Illinois limited partnership, with its principal place of business in Northlake, Illinois. (Second Amend Complaint ("SAC") ¶¶ 1, 9, Bankr. Docket No. 79.) David Carmell ("Carmell"), as president of Apex's general partner, effectively owned and operated Apex, a wholesale auto parts dealer. (SAC, Ex. A at 42.) Whitlock was located in Illinois and sold automotive parts through retail stores in the Midwest and Northeast. (SAC ¶¶ 1, 10-11.) In June 1994, Apex first learned that WSR was interested in selling Whitlock, and thereafter began negotiations. (SAC ¶ 31.) On January 27, 1995, Apex purchased the stock of Whitlock from WSR for $24 million pursuant to a Stock Purchase Agreement dated December 6, 1994 (the "Stock Purchase Agreement"). As part of the purchase transaction, Apex and WSR agreed that prior to the sale, WSR would strip about thirty of the retail auto parts stores out of the assets of Whitlock. The Agreement required that, after closing of the transaction, WSR was to prepare a balance sheet which accurately reflected the value of Whitlock as of the closing date of the transaction. WSR provided to Apex an unaudited, pro forma balance sheet for Whitlock which the parties attached to the Stock Purchase Agreement.
On February 22, 1996, Apex and Whitlock filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et. seq. On September 24, 1996, Apex and Whitlock emerged from bankruptcy jointly as "The Whitlock Corporation. "This opinion continues to refer to Apex and Whitlock by their historical names to avoid confusion.
So states the Bankruptcy Court opinion. This court was unable to find such a provision in the parties' agreement. The parties do not explain whether WSR intended to retain these stores or sell them to another entity after "stripping" them from the Whitlock assets.
The phrase "pro forma" is used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. BLACK'S LAW DICTIONARY, 1212 (6th ed. 1991).
The Stock Purchase Agreement also provided that within ninety days after closing, WSR would prepare a balance sheet that reflected the actual financial position of Whitlock as of the closing date. (SAC Ex. A ¶ 2.4(a).) The parties agreed that this closing balance sheet would be audited by Deloitte and that any difference between this balance sheet and the unaudited balance sheet would support an adjustment in the $24 million purchase price paid by Apex. Apex and WSR agreed that the costs and expenses for Deloitte's services in conducting the audit would be shared equally by both. WSR, however, never delivered the audited closing balance sheet to Apex. (SAC ¶ 61.)
Shortly after the closing of the transaction, problems developed. Apex declared the following in its bankruptcy proceeding: "Almost immediately after the Acquisition, Apex found that the Acquisition had placed it and Whitlock into severe financial trouble for the simple reason that Apex had paid too much for Whitlock." (Disclosure at 7, Ex. 2 to Deloitte Mem.) On or about April 25, 1995, Neal Tyson ("Tyson"), an outside accountant for Apex, sent a memorandum to Carmell stating that Tyson had "come to the conclusion that what they did was to intentionally mislead you as to how they would value the inventory." (April 25, 1996 Mem. from Tyson to Carmell at 1, Ex 4. to Deloitte Mem.) Apex and Deloitte dispute the identity of the persons referred to by Tyson as "they"; Deloitte contends that "they"refers to Deloitte, but Apex insists the term is ambiguous. Tyson's memo includes a recommendation that Apex consult its lawyers.
On October 5, 1995, Apex filed its initial Complaint, case number 95 C 5713, in the United States District Court for the Northern District of Illinois, before Judge Marovich, seeking declaratory judgment against WSR and Deloitte regarding the appropriate manner of calculating certain items necessary to determine the closing book value of Whitlock. The following year, in April 1996, Apex voluntarily dismissed Deloitte from the action. Deloitte asserts that Apex dismissed it from the suit in order to preserve diversity jurisdiction in federal court. Apex contests this assertion claiming it "did not maintain a suit against Deloitte in any forum because it had no factual basis to do so or belief that such a suit was justified." (Plaintiff-Appellant's Brief In Support Of Its Appeal ("Appellant's Appeal Brief"), at 7.)
Although neither party has addressed the issue, the court notes that a claim of diversity jurisdiction here would require Apex to allege the citizenship of each of Deloitte's partners. See Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314, 316 (7th Cir. 1998).
On February 22, 1996, Apex and Whitlock filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et. seq. In October 1996, Apex filed an Amended Complaint, in Bankruptcy Court before Judge Katz, asserting jurisdiction pursuant to 28 U.S.C. § 1334(b) as a matter "relating to" Apex's Chapter 11 case. The Amended Complaint stated several claims, including a fraud claim against WSR. In November of 1996, Apex served document requests on WSR and various third parties, including Deloitte. (Cohen Dec., 662-3 (Exhibit 21).) In 1997, through the responses to these discovery requests, Apex contends that it first learned that Deloitte allegedly had helped to prepare the alleged fraudulent financial statements that formed the basis of the initial transaction. (Appellant's Appeal Brief, at 9.)
On May 13, 1998, Apex sought leave to file a Second Amended Complaint adding Deloitte as a defendant. The Second Amended Complaint includes five counts against Deloitte: fraud, negligence/accounting malpractice, breach of contract, breach of fiduciary duty, and conspiracy to defraud. Apex alleged that WSR and Deloitte each knew, prior to the sale of Whitlock to Apex, that WSR's and Whitlock's books and records were grossly unreliable and inaccurate. Apex alleged that Deloitte made false representations and omitted material information regarding Whitlock's financial condition, inventory and internal controls in order to induce Apex to purchase Whitlock at an inflated price. Apex also alleged that Deloitte and WSR improperly failed to provide Apex with the closing balance sheet called for by the purchase agreement. (SAC ¶¶ 62-67, 105, 138(a).) Apex further alleged that Deloitte orally contracted with Apex to provide, prior to the closing, impartial advice and information about Whitlock, and that Deloitte breached that alleged oral contract. (SAC ¶¶ 32, 118-20, 129-30.) Apex alleged further that after the closing of the transaction, WSR and Deloitte participated in a scheme to continue to conceal the true condition of Whitlock from Apex. Lastly, Apex alleges that Deloitte had a fiduciary duty to disclose to Apex information concerning any inaccuracies in Whitlock's financial statements.
Deloitte filed a motion to dismiss or for summary judgment arguing that the applicable two-year limitations period that applies to actions against public accounting firms, 735 ILCS 5/13-214.2(a), had expired and thus Apex's claims against it were time barred. To support its argument, Deloitte primarily relies on an October 6, 1995 letter from Carmell addressed to WSR and Deloitte. The letter provides in part:
Apex's lawyers are continuing their investigation into whether WSR and/or Deloitte face liability for damages arising from (1) an adverse material change in the condition of the business; (2) breaches of representation and warranties with respect to WSR's financial statements; (3) other omissions, errors and irregularities in WSR's books, records and audited financial statements; and (4) other breaches of the Stock Purchase Agreement.
(October 6, 1995 Letter from Carmell at 2, Ex. 1 to Deloitte Mem.) Deloitte argued that the letter evinces Apex's awareness of possible claims arising from Deloitte's conduct as early as October 1995. Deloitte argues that no later than October 1995 the statute began to run and that it expired in October 1997, two years later. Accordingly, Deloitte contended that Apex's May 1998 suit against Deloitte was filed after the two-year statute of limitations had expired.
Apex contends that in October 1995 it did not and could not have known enough about Deloitte's complicity in the fraud to trigger the limitations period as a matter of law. According to Apex, it was not until 1997, when documents were produced in response to discovery requests, that Deloitte's participation in fraud was revealed. Alternatively, Apex submits that the statute of limitations should be suspended or tolled even if the accrual date had passed pursuant to either the doctrine of equitable estoppel or fraudulent concealment.
In a March 9, 1999 Memorandum Opinion and Order ("the Opinion"), Judge Katz held that all of Apex's claims against Deloitte were time-barred because Apex was on inquiry notice of its alleged claims against Deloitte by October 6, 1995 — more than two years before filing suit against Deloitte — and therefore granted Deloitte's motion for summary judgment on all counts. (Opinion at 15, Bankr. Docket No. 122.) In reaching his conclusion, Judge Katz considered numerous cases cited by the parties but relied primarily on LeBlang Motors, Ltd., v. Subaru of America, Inc., 148 F.3d 680 (7th Cir. 1998). In LeBlang, the plaintiff purchased a Subaru franchise and learned soon afterwards that some of the market information about the franchise that Subaru had provided was inaccurate. LeBlang, 148 F.3d at 683. LeBlang sought legal counsel and sued Subaru. Id. at 691. Several years later, LeBlang attempted to add two new defendants — the Subaru employees who had supplied LeBlang with the alleged misrepresentations. LeBlang alleged that his Illinois common law fraud action against the employees did not accrue until after he learned through discovery that the employees were aware that the information they had provided was false. Id. Judge Katz interpreted LeBlang's holding as follows:
The court held that the fraud action accrued against `all potential defendants' when the plaintiff learned that information it had received before the acquisition was false. The court rejected the plaintiff's argument that its claims had accrued only against the company but not against the two individual defendants, until it learned, through discovery, of the two late-added defendants' complicity in the company's fraud.
Judge Katz applied his interpretation of LeBlang to the case at bar and concluded,
Under LeBlang, Apex's claims against Deloitte and all potential defendants began to accrue by October 1995, when Apex sent the letter to WSR and Deloitte stated that it was investigating their potential liability. This letter established that Apex believed at the time that it had been injured, and believed that the injury was caused by inter alia omissions, errors, irregularities and breaches of representations with respect to WSR's financial statements. Therefore, Apex knew both that an injury had occurred and that it was wrongfully caused; this knowledge is all that it is required for the statute of limitations to begin running in Illinois. That Apex believed that WSR misrepresented the financials of Whitlock is sufficient; this awareness triggered "an obligation to inquire further to determine whether an actionable wrong was committed."
A thorough investigation mandates that Apex consider the potential liability of all parties involved in supplying the financial information. Deloitte was one such party; therefore, it should have been included in Apex's investigation.
. . . [W]hen there was a problem with the financial statements, Apex had a duty to investigate all the parties that had prepared financial information that Apex had relied upon. Apex's cause of action accrued against both WSR and Deloitte in October 1995. Apex did not have the right to wait until years later, when pretrial discovery uncovered information that may have supported a cause of action against Deloitte.In re Apex Automotive Warehouse, L.P., 1999 WL 132849 *4-5 (Bankr.N.D.Ill. March 9, 1999). Additionally, the Bankruptcy Court rejected Apex's arguments that the doctrines of fraudulent concealment and equitable estoppel tolled the limitations period.
On April 8, 1999, Plaintiff-Appellant Apex timely filed its Notice of Appeal of the Bankruptcy Court's Memorandum Opinion and Order. The court now considers Appellant's appeal.
DISCUSSION
Standard of Review
This court reviews the Bankruptcy Court's legal conclusions de novo and its factual findings for clear error. In re Cult Awareness Network, Inc., 151 F.3d 605, 607 (7th Cir. 1998); see also FED. R. BANKR. P. 8013. Clear error means that "although there is evidence to support the findings, the court is left with the definite and firm conviction that a mistake has been committed." Matter of Robert Sheridan, 57 F.3d 627, 633 (7th Cir. 1995).
Summary judgment in bankruptcy proceedings is governed by Federal Rule of Bankruptcy Procedure 7056(c), which incorporates Rule 56(c) of the Federal Rules of Civil Procedure without amendment. This court will uphold the summary judgment where "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Matter of Lefkas General Partners, Numbers 1017, 1018 1020, 112 F.3d 896, 900 (7th Cir. 1997) (citations and internal quotations omitted). The court reviews the record "in the light most favorable to the non-moving party," and will affirm if no reasonable jury could find in Apex's favor. Ill. Conf. of Teamsters v. Steve Gilbert Trucking, 71 F.3d 1361, 1364 (7th Cir. 1995).
Analysis
Apex basically raises two issues on appeal. First, it challenges whether the Bankruptcy Court correctly determined when the two-year Illinois statute of limitations applicable to actions against accounting firms begins to run. Second, it challenges whether the Bankruptcy Court correctly determined that neither the doctrine of fraudulent concealment nor equitable estoppel tolled the limitations period.
Two-Year Statute of Limitation
The parties agree that Illinois law governs this action. Section 214.2 of the Illinois Code of Civil Procedure, 735 ILCS 5/13-214.2 provides a two-year limitations period for suits against accountants, and a codification of the "discovery rule," which establishes when many common law causes of action accrue under Illinois law. See Knox College v. Celotex Corp., 88 Ill.2d 407, 416, 430 N.E.2d 976, 980 (1981). Although the determination of when the statute of limitations begins to run is ordinarily a question of fact for the jury, the Illinois Supreme Court has noted that this is not always so. Witherell v. Weimer, 85 Ill.2d 146, 156, 421 N.E.2d 869, 874 (1981) "Where it is apparent from the undisputed facts . . . that only one conclusion can be drawn, the question becomes one for the court." Id. The limitations period begins to run when a person (1) knows or reasonably should know of his injury, and (2) knows or reasonably should know that it was wrongfully caused. Id. The phrase "wrongfully caused" does not mean knowledge of a specific defendant's negligent conduct or knowledge of the existence of a cause of action. Rather, the term refers to that point in time when "the injured party becomes possessed of sufficient information concerning his or her injury and its cause to put a reasonable person on inquiry to determine whether actionable conduct is involved." Id.
Section 214.2(a) provides that "[a]ctions based upon tort, contract or otherwise" against any public accountant or accounting firm" for an act or omission in the performance of professional services shall be commenced within 2 years from the time the person bringing an action knew or should reasonably have known of such act or omission." 735 ILCS 5/13-214.2(a).
On appeal, Apex first argues that the Bankruptcy Court erred in concluding that the limitations period began to accrue by October 1995, when Apex advised WSR and Deloitte that it was investigating their potential liability. Apex contends that this event was not sufficient to "justify a ruling as a matter of law that the limitations period had started to run." (Appellant's Appeal Brief, at 12.) As noted, the October 1995 letter stated that "Apex's lawyers were continuing their investigation into whether WSR and/or Deloitte face liability" and identified four areas of potential wrongdoing including "breaches of representation and warranties with respect to WSR's financial statements," and "other omissions, errors and irregularities in WSR's books, records and audited financial statements." (October 6, 1995 Letter from Carmell at 2, Ex. 1 to Deloitte Mem.) Apex characterizes this letter as merely an expression of suspicion that Deloitte had engaged in wrongdoing. (Id. at 11.)
Apex argues alternatively that the letter does not establish that Apex was suspicious. Rather, it claims, the letter should be interpreted as mere "bluster to encourage settlement discussion." (Id.)
In support of its contention that the statute did not begin to run until years later, Apex submits a recent Illinois case, Young v. McKiegue, 303 Ill. App.3d 380, 708 N.E.2d 493 (1st Dist. 1999). In Young, a wrongful death action, plaintiff was suspicious of medical care providers at the time of her husband's death on September 4, 1993 at Olympia Fields Osteopathic Medical Center ("Olympia"). Id. at 382, 708 N.E.2d at 496. Plaintiff contacted an attorney, who requested decedent's medical records and forwarded them to two medical experts for review. Id. at 384, 708 N.E.2d at 497. One expert provided a report on August 17, 1994, concluding that "the physicians caring for [the decedent] deviated from the standard of care by not recognizing that his increasing respiratory distress which occurred on September 3 was cardiac in nature." Id. On February 16, 1995, the second expert concluded, similarly, that the decedent "would have had a far better chance of survival had [the] deviations from the standard of care not have been made." Id. With the information from the two reports in hand, plaintiff filed her complaint on March 3, 1995 against Olympia Fields and several of the hospital's doctors based upon their alleged malpractice in failing to diagnose and properly treat the decedent's cardiac condition. Id. In a fourth amended complaint, filed July 24, 1996, plaintiff added Dr. McKiegue as a defendant, alleging she first became aware of Dr. McKiegue's involvement in the treatment of the decedent on June 19, 1996, when during discovery one of the original defendant doctors identified Dr. McKiegue as the attending physician for the decedent on September 3 and 4, 1993. Plaintiff amended her complaint a final time on February 13, 1997 adding two new defendant physicians. In this last amended complaint, plaintiff alleged she first discovered the involvement of these last named physicians on February 5, 1997, when Dr. McKiegue stated in his deposition that they were the physicians on call on the evening of September 3, 1993, and the morning of September 4, 1993. Id. at 385, 708 N.E.2d at 498.
A central issue to be decided in Young was when the two-year statute of limitations for the medical malpractice action began to accrue, specifically, when the plaintiff knew that her injury had been "wrongfully caused." Plaintiff maintained that the limitations period did not accrue until she received the second expert's report on February 16, 1995.
Defendants countered arguing that the limitations period began to accrue in December 1993 when "entertaining suspicions concerning the care provided the decedent, [plaintiff] received the hospital's medical records and retained a lawyer for purposes of investigating a lawsuit on her behalf." Id. at 388, 708 N.E.2d at 500. In the alternative, defendants argued that plaintiff knew or should have known her husband's death may have been wrongfully caused in August 1994 when her lawyer received the first medical expert report. Id.
In concluding that the limitations period began to accrue when plaintiff's attorney received the written report from the first expert, the Court reasoned that the findings set forth in that report
were sufficient to place her on notice that the decedent's death was likely caused by negligent medical care. . . . Receipt of [the first expert's] report in August of 1994, obligated plaintiff to investigate further to determine whether actionable conduct was involved and, within two years of that time, file a cause of action, if viable, against any and all potentially liable parties.
As a matter of law, the two year statute of limitations commenced to run no later than August 17, 1994 when the first expert report was received.Id. at 389, 708 N.E.2d at 500. The court rejected defendants' contention that plaintiff's suspicions of malpractice were per se sufficient to charge her with both actual and constructive knowledge that her husband's death was wrongfully caused. The court stated,
when a party knows or reasonably should know that her injury was wrongfully caused does not mean when a party is suspicious that her injury was wrongfully caused. Thus, the statute of limitations is not triggered during that period in which the party is attempting to discover whether her injury is wrongfully caused. Instead, the limitations period commences when the party possesses enough information concerning her injury to apprise a reasonable person to the need for further inquiry to determine whether a legal wrong has been committed.Id. at 382, 708 N.E.2d at 501.
In the case at bar, Apex argues that the Bankruptcy Court erred in concluding that the statute of limitations period began to accrue in October 1995 when Apex sent the letter from Carmell to WSR and Deloitte. (Appellant's Appeal Brief, at 15.) Apex asserts that the Carmell letter only evinces that it wassuspicious of Deloitte's wrongdoing, and that under Young, such suspicions are insufficient to trigger the statute of limitations. (Appellant's Appeal Brief, at 11.)
In this court's view, the October 1995 letter was more than an expression of suspicion. The letter is directly addressed to both WSR and Deloitte and unambiguously states that Apex was investigating Deloitte's potential liability for misrepresentation and contract claims. The Bankruptcy Court correctly concluded that this letter is sufficient to demonstrate that Apex had inquiry notice of its claims: the statute begins to run as soon as the plaintiff knows or reasonably should know of his injury, and also knows or reasonably should know that the injury was wrongfully caused. City Nat'l Bank v. Checkers, Simon Rosner, 32 F.3d 277, 281-83 (7th Cir. 1994)
In City Nat'l Bank, the Seventh Circuit affirmed the district court's dismissal of a fraud claim as untimely pursuant to the Illinois two-year statute of limitations for actions against accounting firms. Id. at 284. There, a borrower's financial statements, prepared by defendant accounting firm, repeatedly set forth that the borrower had a net worth ranging between $24.6 million (in 1987) and $29.4 million (in 1988). Id. at 283. Plaintiff bank relied on these financial statements and in March of 1989 agreed to lend $500,000 to the borrower. Id. Despite his alleged enormous net worth, borrower was unable to repay the loan when it came due. Following three extensions of time the bank declared a default on July 26, 1990. Id. at 284.
In the spring of 1991, the borrower sought bankruptcy protection. Id. at 279. The bank challenged the dischargeability of borrower's debt and filed an adversary proceeding in bankruptcy court, alleging that borrower had committed fraud. Id. On March 26, 1992, plaintiff bank's attorney deposed a member of the defendant accounting firm and learned for the first time that the firm had knowledge of the false, misleading and grossly exaggerated nature of the representations contained in borrower's financial statements. Id. at 280. On September 29, 1992, plaintiff filed a fraud and negligence action against the accounting firm arguing that its cause of action against the firm did not accrue until March of 1992. Id. at 281. The bank claimed that prior to the deposition, it did not and could not reasonably have known of defendant's wrongdoing. Id.
The district court held, and the Seventh Circuit affirmed, that the bank's cause of action against the accounting firm accrued on July 26, 1990, the day borrower defaulted on the loan. Plaintiff's September 29, 1992 lawsuit was therefore time barred. Id. at 283. The Seventh Circuit commented:
A thorough investigation mandates that the bank consider the potential liability of all parties involved in [the bank's] process of making the loan to borrower, and obviously the accounting firm which prepared the financial statements upon which the bank relied should have been included in that investigation. . .
We hold that as of July 26, 1990, [the bank] was on notice of the need for it to investigate whether it had a cause of action against [the accounting firm] for any damages incurred by reason of [borrower's] default.Id. at 284.
Similarly in the instant case, the court holds that Apex was on inquiry notice by October 1995, when Apex sent the letter to WSR and Deloitte stating that it was investigating their potential liability. A plaintiff need not discover that it has a specific cause of action against a specific defendant for the limitations period to commence. Knox College, 88 Ill.2d at 416, 430 N.E.2d at 980. "The phrase `wrongfully caused' does not mean . . . knowledge of the existence of a cause of action." Id. at 388, 708 N.E.2d at 500; see also Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332,1335 (7th Cir. 1997) ("the facts that put the victim of the fraud on notice can fall short of actual proof of fraud"). Although Apex might not have fully completed its investigation against Deloitte by October 1995, the court concludes it had sufficient information concerning its injury to apprise a reasonable person that further inquiry was needed to determine whether a legal wrong had been committed. Id. at 388, 708 N.E.2d at 501.
For similar reasons, the court also holds that the Bankruptcy Court correctly interpreted and applied the LeBlang case. Apex contends that the "Bankruptcy Court erred in reading LeBlang to stand for the proposition that the limitations period for all defendants — regardless of their connection to a fraud — begins upon the plaintiff's actual knowledge of having been defrauded." (Plaintiff-Appellant's Brief in Support of Its Appeal, at 17.) Apex has misinterpreted the Bankruptcy Court's opinion. In LeBlang, the Seventh Circuit affirmed the dismissal of claims against two individuals added later as defendants to an existing fraud action. The court held that the statute of limitations for the fraud action accrued against "all potential defendants" at the moment when the plaintiff learned of the original defendant's misconduct. The Bankruptcy Court, citing LeBlang ruled
A thorough investigation mandates that Apex consider the potential liability of all parties involved in supplying the financial information. Deloitte was one such party; therefore, it should have been included in Apex's investigation.
(Opinion, at * 4.) (emphasis added) Thus, when Apex discovered inaccuracies in the financial statement, Apex had a duty to investigate all the parties that had prepared the statements. The language in the October 1995 letter demonstrates that Apex knew or should have known that Deloitte was one of those parties.
Equitable Estoppel and Fraudulent Concealment
Apex argued, in the alternative, that the doctrines of equitable estoppel and fraudulent concealment operate to toll the running of the limitations period for Apex's alleged claims against Deloitte, charging that Deloitte had engaged in certain affirmative acts of concealment. The Bankruptcy Court held that Apex failed to come forward with legally sufficient evidence establishing that Deloitte had engaged in affirmative acts invoking these tolling doctrines. Again, this court agrees.
The Illinois fraudulent concealment statute provides:
If a person liable to an action fraudulently conceals the cause of such action the knowledge of the person entitled thereto, the action may be commenced at any time within 5 years after the person entitled to bring the same discovers that he or she has such cause of actions, and not afterwards.735 ILCS 5/13-215. In order to invoke the doctrine of fraudulent concealment, "there must be affirmative acts or representations which are calculated to `lull or induce a claimant into delaying filing of his claim or to prevent a claimant from discovering his claim.'" Smith v. Cook County Hosp., 164 Ill. App.3d 857, 862, 518 N.E.2d 336, 340 (1st Dist. 1987).
Equitable estoppel is a doctrine that tolls the running of a statute of limitations during any period in which the defendant took active steps to prevent the plaintiff from suing. Singletary v. Continental Ill. Nat'l Bank Trust Co., 9 F.3d 1236, 1241 (7th Cir. 1993). The steps taken must have been affirmative efforts to delay the plaintiff from bringing suit before the statute of limitations has run. Id. Actions such as promising the plaintiff not to plead the statute of limitations pending settlement talks or actively concealing evidence constitute affirmative efforts sufficient to toll the statute. Id. Mere denial of liability or refusal to cooperate in making the plaintiff's case is insufficient. Id.
Apex claims the doctrines of equitable estoppel and fraudulent concealment are available here for three reasons: (1) Deloitte's failure to inform Apex of its involvement amounts to an affirmative act of concealment due to Deloitte's fiduciary duty owed to Apex; (2) Deloitte concealed the terms of Deloitte's engagement letter with WSR concerning the issuance of Whitlock's post-closing balance sheet; (3) Deloitte response to Apex's inquiries in spring of 1995 about accounting issues and the closing balance sheet were affirmative acts of concealment. The court here reviews these claims and after careful consideration affirms the Bankruptcy Court's findings.
First, Apex claims "as a result of Deloitte's expertise and its relation of trust and confidence with Apex, Deloitte owed Apex a fiduciary duty." (Appellant's Appeal Brief, at 22.) Apex asserts that Deloitte breached this duty by remaining silent as to its involvement in the preparation of Whitlock's financial statements. (Id.) To support its claim that a fiduciary duty was owed, Apex alleges that Deloitte presented itself as the "honest broker and facilitator" and as an accounting firm with expertise in the field. (Id. at 21.)
Deloitte counters Apex's contention that it owed a fiduciary duty to Apex by claiming it was an independent auditor, and had not exercised any dominance or superiority over Apex. Deloitte cites the applicable General Accepted Auditing Standards arguing that "an auditor who is required by professional standards to maintain independence and impartiality cannot simultaneously be that client's fiduciary." (Appellee Deloitte Touche LLP's Brief in Opposition to the Appeal of The Whitlock Corporation ("Opposition Brief"), at 23.) Deloitte argues that "Apex's conclusory allegations that it trusted and reposed confidence in Deloitte [were] insufficient to give rise to a fiduciary relationship." (Opposition Brief, at 24.)
The Bankruptcy court, in concluding that no fiduciary relationship existed, stated
[T]hat one party trusts another is insufficient to create a fiduciary relationship. "We trust most people with whom we choose to do business." Pommier v. Peoples Bank Marycrest, 967 F.2d 1115, 119 (7th Cir. 1992).
(Opinion, at * 6.) Contrary to Apex's contentions, the fact that it had trust and confidence in Deloitte as its independent advisor, is insufficient to create a fiduciary duty. RTC v. KPMG Peat Marwick, 844 F. Supp. 431, 436 (N.D.Ill. 1994) (An independent auditor does not owe fiduciary duties to its client as a matter of law). Deloitte was thus not a fiduciary of Apex based on their alleged relationship.
Although Apex has failed to show the existence of a fiduciary relationship based upon the type of relationship, Apex can still establish that a duty was owed based upon the nature of the relationship. Fiduciary duties are sometimes imposed on an ad hoc basis. Burdett v. Miller, 957 F.2d 1375, 1381 (7th Cir. 1992). A fiduciary relationship can exist where the fiduciary exercises a significant degree of dominance over the other party. Amendola v. Bayer, 907 F.2d 760, 763 (7th Cir. 1990) (A fiduciary relationship requires an "influence and superiority over the other.") The facts here belie Apex's assertion that Deloitte exercised any dominance over Apex, however. Apex was represented by its own counsel in this transaction. Moreover, Apex employed a separate accounting firm to provide services relating to the purchase of Whitlock. (SAC Ex. A ¶ 14.1, SAC ¶ 45(d)(i).) The court affirms the Bankruptcy Court's ruling that Deloitte did not owe a fiduciary duty to Apex.
Apex's remaining two contentions are similarly unpersuasive. Apex notes, specifically that (1) Deloitte concealed the terms of an engagement letter between WSR and Deloitte, and (2) Deloitte concealed its involvement with WSR in the Whitlock transaction by providing responses to inquiries by Apex designed to put "Apex off the scent" of Deloitte's wrongdoing. (Appellant's Appeal Brief, at 22-24.) Specifically, Apex points to two Deloitte letters in response to Apex requests for information dated March 23, 1995 and May 31, 1995. (Id. at 24.) Significantly, both of these letters were received by Apex months before the October 5, 1995 letter was written stating Apex's intentions to continue to investigate the liability of WSR and Deloitte. The Bankruptcy Court, noting the chronology these letters correctly concluded, "[c]learly as evidenced by the letter, Apex did not rely on those affirmative actions and thought there might still exist liability against Deloitte for its injury." (Opinion at * 7.) As the Bankruptcy Court concluded, Apex has failed to provide sufficient affirmative acts which support the tolling of the statute of limitations.
CONCLUSION
The court affirms the Bankruptcy Court's Memorandum Opinion and Order.